I'm finding that the North Carolina state 401k and 457b plan participants pay several times more for record keeping and administration than they do for mutual fund management. Is this typical?
Jim, for perspective, you might expect recordkeeping and administrative costs could be in the neighborhood of 50 bps. On large plans, they could be less. On very small plans, they could be considerably more. Some plans pass on all of its administrative expense to its employees, where some may absorb some or all of that expense.
Plan sponsors, in your case, the State of North Carolina, have a fiduciary responsibility, that is, they have a responsibility to act in the best interest of the plan participants. That responsibility includes selecting a plan that has reasonable fees; not necessarily the lowest fees, but fees that justify their value, as there any be more, or less services offered.
If your plan is offering investment options with an expense ratio of 10 – 25 bps, or in that low range, and recordkeeping and admin is even, lets say 40 bps, then yes, as a ratio, the recordkeeping and management fees are several times more than the fund expenses. If this example is reasonably accurate, you can look at it from the perspective that your fund expenses are really very low. Some plans have fund expenses that 150 bps.
You should be able to obtain a 404(a)5 fee disclosure document directly from the plan website. It will disclose all fees. It is not the easiest document to read, but you will find everything there
Hi Jim, That's a great question. Fees can be a tricky thing when it comes to 401(k) plans. Paying more is not always a bad thing if you are getting great service. So be sure to understand not only what your paying but what your paying for. Also, some cost may be passed on to the employee when the sponsor does not want to bare the cost alone.
Administrative fees — Employer or Participant -Annual fees for recordkeeping services -Base fee and/or per-employee cost
Transactional fees — Employer or Participant -Activity-based charges: loans, distributions -Dollar amount per transaction
Investment management fees — Participant -Charge by money manager -Asset-based charge
Insurance features — Participant -Mortality and expense-risk fee -Asset-based charge
Sales charge on investments — Participant -Asset-based charge
Direct or indirect fees -12b-1 fees
Hope this helps.